Risks

Documentation Index

Fetch the complete documentation index at: https://docs.monolith.market/llms.txt

Use this file to discover all available pages before exploring further.

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Overview

Using Monolith involves real financial risk. This page documents the material risks specific to the protocol’s design. It is not exhaustive — DeFi carries inherent risks beyond any single protocol’s control. Users should understand these risks fully before borrowing, staking, or holding Monolith stablecoins.

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Smart Contract Risk

Despite audits by Electisec and a completed re-audit by ChainSecurity, no smart contract review eliminates the possibility of undiscovered vulnerabilities. Bugs in core contracts — including the Factory, Lender, Vault, or interest rate model — could result in loss of user funds. Complexity in how contracts interact increases the surface area for unexpected behavior.

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Oracle Risk

Monolith relies on external price feeds to value collateral and determine liquidation eligibility. A manipulated, stale, or failed oracle can cause incorrect liquidations or allow over-borrowing. Users should be aware of the specific price feed used by any instance they interact with and understand its update frequency and reliability properties.

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Liquidation Risk

Borrowers whose collateral falls below the required threshold will have their position liquidated. In fast-moving markets, collateral value can decline faster than a borrower can respond. Partial or full liquidation reduces the amount of stablecoin debt but also permanently reduces the borrower’s collateral position. There is no grace period — liquidations are permissionless and can be triggered by any party at any time threshold conditions are met.

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Redemption Risk (0% Borrowing Mode)

Borrowers who use the 0% interest rate mode accept the risk of redemption. Any holder of the stablecoin can redeem their tokens directly against the collateral of a specified borrower in redeemable status. Redemptions improve the overall health of the loan book by targeting borrowers and repaying their debt, but the affected borrower will have their collateral reduced in exchange. Borrowers who wish to avoid redemption risk should switch to the variable rate borrowing mode, which provides full protection from redemptions.

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Interest Rate Risk (Variable Borrowing Mode)

Borrowers in the variable rate mode are protected from redemptions but face a dynamically adjusted borrow rate. The autonomous interest rate controller adjusts rates to defend the stablecoin’s peg. In periods of significant peg pressure, rates may rise substantially. Borrowers should account for variable rate exposure when sizing positions.

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Collateral Concentration Risk

Each Monolith instance is backed by a single collateral asset. Unlike diversified lending pools, there is no cross-collateralization — the solvency of the stablecoin depends entirely on the price stability and liquidity of that one asset. A severe decline or illiquidity event in the collateral asset can impair the stablecoin’s peg and result in bad debt.

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Bad Debt Risk

In extreme scenarios where a position becomes deeply undercollateralized and cannot be fully liquidated, the resulting bad debt is socialized across all active borrowers in the system — both variable rate and 0% mode borrowers — proportionally. This reduces the debt burden of the bad debt position at the cost of increasing the effective debt of other borrowers. Users should be aware that the financial health of the overall borrower pool affects their own position.

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Immutability Risk

Monolith’s immutability model is a feature, but it carries its own considerations. Before the immutability deadline, an instance operator retains the ability to adjust certain parameters, including interest model knobs and redemption fees. Users should be aware of whether the instance they are using has reached its immutability deadline. After the deadline passes (or enableImmutabilityNow() is called), the operator loses all policy-level access permanently — meaning a discovered misconfiguration cannot be corrected.

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Factory and Instance Legitimacy Risk

Anyone can deploy a Monolith stablecoin instance through the Factory. Not all instances are created or endorsed by the Monolith core team. Users must independently verify the legitimacy of any instance they interact with, including reviewing the collateral asset, price feed, operator configuration, and immutability status. Interacting with an unverified or malicious instance carries significant risk.

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Network and Gas Risk

Liquidations, redemptions, and debt management actions require on-chain transactions. During periods of high Ethereum network congestion, gas costs may be prohibitive and transaction confirmation may be delayed. This can affect a borrower’s ability to add collateral or repay debt before a liquidation or redemption event occurs.

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Mitigation

These risks are not unique to Monolith, but they are real. Users are encouraged to maintain conservative collateral ratios, monitor their positions actively, review the audit history for any instance they use, and stay current with protocol communications.